[Click eStock] "Kakao Games Q1 Earnings Expected to Decline... Target Price Down"

Continued Payment Fees and Marketing Expenses Increase Burden
Concerns Over High Volatility in Non-Gaming Segment Performance

On the 23rd, SK Securities forecasted that Kakao Games' first-quarter earnings would fall short of consensus. Accordingly, the investment rating was maintained at 'Neutral,' but the target price was lowered to 23,000 KRW.

Nam Hyoji, a researcher at SK Securities, stated, "We estimate first-quarter sales to increase by 3.2% year-on-year to 257.1 billion KRW, operating profit to rise by 5.4% to 12 billion KRW, and net income attributable to controlling shareholders to surge by 175.3% to 6.2 billion KRW," adding, "Operating profit is expected to fall short of the consensus (14.5 billion KRW)."

Researcher Nam explained, "Due to delays in new releases and changes in the timing of overseas expansion for existing titles, we have lowered the 2024 and 2025 net income attributable to controlling shareholders forecasts by 58.8% and 36.8%, respectively, compared to previous estimates." He also added, "We changed the target price calculation period to Q3 2024 through Q2 2025 and maintained the applied multiple at 23.9 times, resulting in a lowered target price."

Nam noted that the overall revenue growth is limited due to decreased sales from existing MMORPGs such as 'Odin,' 'Ares,' and 'ArcheAge War.' Operating expenses were 245.1 billion KRW (+3.1%), reflecting increased related marketing costs and commission fees.

Researcher Nam evaluated that Kakao Games' current 12-month forward price-to-earnings ratio (12MF PER) is about 22 times, which is less attractive compared to its peers.

He pointed out, "While it is positive that many upcoming titles are in the pipeline, the fact that many publishing projects continuously incur commission fees and marketing expenses is burdensome. Additionally, the high volatility in non-gaming segment performance due to macroeconomic conditions reduces visibility, which is also a concern."